- saving-credit, a 10-year program
- sustainability in 3 dimensions
- the institutional factor
- the human resource factor
- the financial factor: the interest rate
Saving-Credit, a 10-year program
In general, a Saving-Credit program takes ten years of development to become sustainable.
Five years are necessary to establish a Saving-Credit program in several villages, five more years are needed to consolidate it and transfer the management to locals.
During the first five years, the groups and funds are set up and structured, the women are trained, the mentality of the people begins to change. the Saving-Credit concept is accepted and the program expands.
During the next five years, the program consolidates and strengthens while attaining its financial break-even. Progress becomes more and more visible. The program takes root in the social scene. The women take part actively and in sheer numbers in all the local development activities.
The program is sustainable.
Sustainability in 3 dimensions: institutional, human resources, financial
In reality, three major factors are to be considered to insure sustainability. All 3 are essential.
- the institutional factor: the program should ultimately be managed by a registered legal organization,
- the human resource factor: the cadres -mainly women- should be able to manage the groups and run the program,
- the financial factor: all the expenses, including the cost of the capital (or inflation), should be covered.
The Institutional factor
We want to help provide the conditions where our participation is reduced or altogether not needed anymore. Therefore at some stage another organization should take over the programs.
Which legal organization is appropriate ? It should be able to continue the program in good conditions, namely with a strong participation of the members. It seems a local NGO would best fit this criteria, but local NGOs are difficult to set up in Vietnam.
In the other hand, the authorities would like the projects be handled by the Women's Union [1] or the Program for the Eradication of Hunger and the Alleviation of Poverty. While the participation of the Women's Union is a key factor of success, with its hierarchical structure, ensuring a strong participation from the poor is a challenge. In several communes the Women's union runs the program with our collaboration.
The Human Resource factor
The poor and women, for about one third of them, hardly read newspapers or documents, they have no or little experience of management and communication. They are mainly focused on short term issues, to earn a living and do not and are not keen to hear about cooperatives or collective actions. During the first meetings, they hardly dare to speak out.
But, as the program develops, they gain assertiveness, in social activities and in their daily private life as well. They become very active in the further adjustments of the program, propose new activities and improvements etc.
Training is the core element of any program: before a Savings-Credit group is formed, then during the follow-up of the group meetings. The group leaders have a 1 day meeting-training every quarter. The village workers have 2 days training every month. There are also training sessions in agriculture, livestock, health, pedagogy, not counting the training with fun and laughter at the theatre. Altogether, in a project like Dúc Linh - Tánh Linh there are every year about 20.000 people-days of training; except the theatre which reaches another 50.000 spectators every year!
The financial factor: the interest rate
For the sake of the financial sustainability the monthly interest rate had been set at 1.2% for the credits equivalent to 24%/year. This compares with the bank rate of approximately 9%.
Actually, it is indispensable to cover the cost of capital, the inflation, the risk of non-reimbursement and running costs. The experiences from various former projects give the following ratios:
| Inflation, cost of capital | 30% |
| Employees salaries | 24% |
| Training expenses | 20% |
| Running costs | 24% |
| Provision for non-reimbursement | 02% |
 |
A changing context, the necessary adjustments
Since 2002 access to bank credit has become easier and cheaper. There is a determination on the part of the authorities to make credit available. This las quickly lead to massive over endebtedness, loans are often refunded with new loans. As a result the interest for microfinance is less, for 2 reasons:
- Weekly or monthly reimbursements imply the loans must really be repaid! On the contrary, as a bank loan is repaid in one installment at the end of the cycle, and because a new and bigger loan is obtained in just 3 days, it is easy to borrow from the moneylenders enough to repay the first loan, get the new loan, repay the moneylender, and one still has a positive balance! A parallel market has quickly been set up, often in collaboration with bank officials and with cadres of the Women's Union.
- The interest rate of a microfinance program is always higher. While the bank just wait for the client to show up and only provides loans of several hundreds of euros, refunded in only one installment at the bank branch, the picture is totally different for a microfinance program: small loans (30-60 euros), delivered in the villages, refunded in as many as 50 small installments in the villages also: the costs are thus much higher.
Over endebtedness and lack of discipline have thus become difficult issues, even the banks complain there is a lack of support from the authorities. Some estimate 70% of the bank portfolio will never be recovered. So many borrow with the intention of not repaying their loan.
Microfinance is based on solidarity; money is lent without collateral but the group is responsible for every individual loan. Till all loans have been refunded no new loan is provided. The problem is that when a minority does not repay, the other members may be discouraged; as they see they could not get a new loan anyway, some stop paying their weekly installments as well. Because bank credit is easily available and cheap, the contagion spreads.
We have decided to progressively reduce the program and to focus on solidarity and savings, the number of members will be limited to those who are sincerely interested in more than just credit.
[1] The Women's Union is the organization under the Communist Party, in charge of promoting women and party policies towards them. There are similar organizations for the farmers, the youth etc.
